The IRS Is Hot on the Trail of Unreported Virtual Currency Transactions

The IRS Is Hot on the Trail of Unreported Virtual Currency Transactions

Back in 2018, Coinbase, a company handling virtual currency (also referred to as cryptocurrency) transactions, released the data of 14,000 of its users to the IRS after the information was subpoenaed, and virtual currency traders held their breath about what the IRS would do with the information related to those 14,000 users.

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Tax Changes For 2019

Tax Changes For 2019

As the end of the year approaches, now is a good time to review the various changes that impact 2019 tax returns. Some of the changes are likely to apply to your tax situation. In addition, be aware that various tax-related bills currently in Congress may or may not pass this year. If any of them do pass, we will quickly get the details to you.

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Earn Tax-Free Income from Working Abroad

U.S. citizens and resident aliens are taxed on their worldwide income, whether they live inside or outside of the U.S. However, qualifying U.S. citizens and resident aliens who live and work abroad may be able to exclude from their income all or part of their foreign salary or wages, or amounts received as compensation for their personal services. In addition, they may also qualify to exclude or deduct certain foreign housing costs.

This exclusion applies to both employees and self-employed individuals. In addition to the excludable income, this can also be an attractive option to individuals who wish to travel the world. Today’s digital world allows individuals, armed with their computer and a Wi-Fi connection, to work from anywhere.

So, for example, if you would like to be a digital wanderer and your employer is good with it or you are self-employed, you can travel the world while earning income from your employer or your self-employment clients.

You can have payroll disbursements and client payments deposited in your U.S. bank account, charge expenses on your credit card, and use online banking to make credit card payments, thus avoiding any foreign bank account reporting.

You will still have to file a U.S. 1040 tax return and report your income the same way as if you were living and working in the U.S., except if you meet certain requirements, you will be able to exclude some or all of your foreign earnings from income tax.

To qualify for the foreign earned income exclusion, a U.S. citizen or resident alien must:

  • Have foreign earned income (income received for working in a foreign country, including payroll disbursements from a U.S. employer and self-employment income);
  • Have a tax home in a foreign country; and
  • Meet either the bona fide residence test or the physical presence test.

The foreign earned income exclusion amount is adjusted annually for inflation. For 2019, the maximum is up to $105,900 per qualifying person. If the taxpayers are married and both spouses (1) work abroad and (2) meet either the bona fide residence test or the physical presence test, each one can choose the foreign earned income exclusion. Together, they can exclude as much as $211,800 for the 2019 tax year, but if one spouse uses less than 100% of his or her exclusion, the unused amount cannot be transferred to the other spouse.

In addition to the foreign earned income exclusion, qualifying individuals may also choose to exclude or deduct a foreign housing amount from their foreign earned income. The amount of qualified housing expenses eligible for the housing exclusion and housing deduction is generally limited to 30% of the maximum foreign earned income exclusion. The housing amount limitation is $31,770 for the 2019 tax year. However, the limit will vary depending on where the qualifying individual’s foreign tax home is located and the number of qualifying days in the tax year. The foreign earned income exclusion is limited to the actual foreign earned income minus the foreign housing exclusion. Therefore, to exclude a foreign housing amount, the qualifying individual must first figure the foreign housing exclusion before determining the amount for the foreign earned income exclusion.

Before you become overly excited about working from some exotic foreign locale, foreign earned income does not include the following amounts:

  • Pay received as a military or civilian employee of the U.S. Government or any of its agencies.
  • Pay for services conducted in international waters (not a foreign country).
  • Pay in specific combat zones, as designated by a Presidential Executive Order, that is excludable from income.
  • Payments received after the end of the tax year when the services were performed to earn the income.
  • The value of meals and lodging that are excluded from income because they were furnished for the employer’s convenience.
  • Pension or annuity payments, including Social Security benefits.

A qualifying individual may also claim the foreign earned income exclusion on foreign-earned self-employment income. The excluded amount will reduce the individual’s regular income tax but will not reduce his or her self-employment tax. Also, the foreign housing deduction—instead of a foreign housing exclusion—may be claimed.

A qualifying individual claiming the foreign earned income exclusion, the housing exclusion, or both must figure the tax on the remaining non-excluded income using the tax rates that would have applied had the individual not claimed the exclusions. In other words, the exclusion is “off the bottom,” not “off the top.”

Once the foreign earned income exclusion is chosen, a foreign tax credit—or a deduction for foreign income taxes—cannot be claimed on the income that can be excluded. If a foreign tax credit or tax deduction is claimed for any of the foreign taxes on the excluded income, the foreign earned income exclusion may be considered revoked.

Other issues:

Earned income credit – Once the foreign earned income exclusion is claimed, the earned income credit cannot be claimed for that year.

Timing of election – Generally, a qualifying individual must initially choose the foreign earned income exclusion with one of the following income tax returns:

  • A return filed by the due date (including any extensions);
  • A return amending a timely filed return;
  • An amended return, which generally must be filed by the later of 3 years after the filing date of the original return or 2 years after the tax is paid; or
  • A return filed within 1 year from the original due date of the return (determined without regard to any extensions).

A qualifying individual can revoke an election to claim the foreign earned income exclusion for any year. This is done by attaching a statement to the tax return revoking one or more previously made choices. The statement must specify which choice(s) are being revoked, as the election to exclude foreign earned income and the election to exclude foreign housing amounts must be revoked separately. If an election is revoked, and if the qualifying individual again wishes to choose the same exclusion within 5 years, he or she must apply for approval by requesting a ruling from the IRS.

State Tax – If your U.S. state of residence when departing the U.S. is one with state income tax, you may be required to report all of the foreign income on the state tax return, unless there is an exception.

If you are considering foreign employment or traveling aboard while working, before you make your final decision, please call our office to learn more about the foreign earned income and housing allowance exclusions, or about how to meet the bona fide residence or physical presence tests.


Isler Northwest LLC is a firm of certified public accountants and business advisors based in Portland, Oregon. Our local, regional, and global resources, our expertise, and our emphasis on innovative solutions and continuity create value for our clients. Our service goals at Isler Northwest is to earn our clients trust as their primary business and financial advisors.

Isler Northwest

(503) 224-5321

1300 SW 5th Avenue
Suite 2900
Portland, Oregon 97201

Is It Time for a Payroll Tax Checkup?

Was your 2018 federal tax refund less than normal, or – worse yet – did you actually owe tax despite usually getting a refund? If so, this was primarily due to the last-minute passage of the Tax Cuts and Jobs Act at the end of 2017. Because the law was only passed late in the year, the IRS did not have adequate time to adjust its W-4 form and the related computation tables to account for all of the changes in the law. Thus, even if your taxes were lower for the year, the lack of adjustments to the W-4 and payroll-withholding tables meant that you likely had lower withholding and higher take-home pay for 2018. The bottom line is that, because your withholding was lower than it should have been, either your refund was lower than normal or you actually ended up owing money instead of getting a refund.

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See the US Tax System Illustrated in One Complex Map

Not sure whether it’s worth your while to hire a tax professional to do your taxes? Thinking that maybe this year you’ll take a run at it yourself? You may want to think again after taking a look at a new graphic released by the Taxpayer Advocate Service (TAS). The organization, which is dedicated to helping taxpayers resolve tax problems,

Puts out a map every year that’s designed to help us all understand the workings of the tax system. One quick look should tell you that if you’re feeling confused or overwhelmed, it’s not you — it’s them.

To truly understand just how complicated America’s tax system is, take a look at the newest TAS chart:

Your next move after looking at this may be to go to Google and type “Why are taxes so complicated in the US?” Know what you would get for an answer? 35 million different options for pages and websites looking to give you an explanation. Reviewing the top results will make it clear that even though we were promised taxes so simple that we could send them in on a postcard, the Tax Cuts and Jobs Act of 2017 made the situation even more complicated. Even tax professionals are still scratching their heads and trying to figure the whole thing out.

Though the leader of TAS, National Taxpayer Advocate (NTA) Nina Olson’s goal is to

“recommend changes that will prevent problems,” her hopes for doing that are as dashed as the average taxpayer’s when she looks at this year’s chart. “Anyone looking at this map will understand that we have an incredibly complex tax system that is almost impossible for the average taxpayer to navigate,” she said.

In the face of increasing complexity, what’s a taxpayer to do to make sure that their taxes are prepared properly and in a way that minimizes their tax liability? The only good answer seems to be to seek professional help.

Hire a Tax Professional.

It’s always tempting to sharpen your pencil and try to make your way through your tax forms for yourself – especially with the advent of so many off-the-shelf, do-it-yourself tax programs. But in light of the mind-numbing maze that the process involves, you’re probably far better off spending the money and getting help from a tax pro.

There’s no doubt that you could look up everything you need to know about your particular tax situation – so could every other taxpayer and small business owner – but there’s a real question as to whether doing so is a good choice versus hiring a professional who has devoted themselves to staying on top of every rule change and regulation, as it is issued. Your time is worth more than that, and if you’re not sure that’s true just consider what you’d have to do to get even a basic understanding of the impact of the latest tax reform law: for instance, reading this 14-page document from the IRS. It’s a good sleep aid, but not likely to make things particularly clear or easily understandable.

When you consider the amount of studying you would have to do just to understand the basics — and not even scratch the surface of the extra deductions and credits that you may be entitled to — there’s no doubt that it’s worth your investment to use a tax professional. It’s the decision that 72% of small business owners have made, acknowledging that the money they spend on these services is worth it. According to a CountingWorks SMB survey, these entrepreneurs call CPAs and tax professionals “very important advisors over other professionals like attorneys, business bankers, insurance agents, and computer consultants.”

It’s your decision, but when you take an objective view of the amount of work you’d have to put in to doing your own taxes as compared to the advantages of using a professional, it doesn’t make much sense to put yourself through the headache. If you have any questions or would like to discuss your particular tax situation and planning options, please contact our office.


Isler Northwest LLC is a firm of certified public accountants and business advisors based in Portland, Oregon. Our local, regional, and global resources, our expertise, and our emphasis on innovative solutions and continuity create value for our clients. Our service goals at Isler Northwest is to earn our clients trust as their primary business and financial advisors.

Isler Northwest

(503) 224-5321

1300 SW 5th Avenue
Suite 2900
Portland, Oregon 97201

Employee Stock Options Can be Taxing

If you are an employee of a corporation, as an incentive to continue employment, the company may offer you the option to purchase shares of the corporation at a fixed price at some future date so that you can benefit from your commitment to the success of the company by sharing in the company’s growth through the increase in stock value.

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Tax Issues Related to Hobbies

Generally, when individuals have a hobby, they have it because they enjoy it and are not involved in their hobby with the goal of making money. In fact, most hobbies never make money or don’t even create any income, for that matter. Tax law generally does not allow deductions for personal expenses except those allowed as itemized deductions on the 1040 Schedule A, and this also applies to hobby expenses.

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What Are the Tax Advantages of Homeownership?

Housing is a big expense for everyone. The choice generally involves either renting or purchasing – and financing that purchase with a home loan. This article explores the tax benefits and drawbacks that individuals should consider when deciding whether to buy a home.

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How to Write Off Worthless Stock

How to Write Off Worthless Stock

If you are like most investors, you occasionally will pick a loser that declines in value. Sometimes, a security can even become worthless when the issuing company goes out of business.

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Foreign Account Reporting Requirements (FBAR)

Foreign Account Reporting Requirements (FBAR)

U.S. citizens and residents with a financial interest in or signature or other authority over any foreign financial account need to report that relationship by filing FinCEN Form 114 if the aggregate value of the accounts exceeds $10,000 at any time during the year. The due for 2018’s report was April 15, 2019, with an automatic 6-month extension to October 15, 2019. Failure to file can result in draconian penalties. Form 114 is filed electronically with the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) BSA E-Filing System and not as part of the individual’s income tax filing with the IRS.

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